Academic journal article Journal of Accountancy

Line Items

Academic journal article Journal of Accountancy

Line Items

Article excerpt

Cash Accounting Okay for Drugs

* A professional medical corporation specializing in oncology and hematology maintained a two-week supply of chemotherapy drugs on its premises. Nurses administered the drugs, but a physician was always on site to respond to emergencies. The drugs could not be self-administered and patients could select neither the type or the quantity of drugs for treatments. Under state law, only a doctor could prescribe these drugs and only a licensed pharmacist could sell them.

The IRS challenged the corporation's use of the cash basis of accounting. The service forced it to inventory the drugs and to include the related accounts receivable in income.

The corporation argued it was not selling the drugs but providing medical services for which the cash basis of accounting was allowed. The taxpayer believed the administration of the drugs was an integral part of the service provided.

The Tax Court sided with the taxpayer and held that the drugs were not "merchandise" under regulations section 1.471-1, and, therefore, the taxpayer properly used the cash method of accounting to deduct the drugs currently as supplies. (Osteopathic Medical Oncology and Hematology, PC v. Commissioner, 113 TC no. 26, 11-22-99.)

Service Gives Heads Up on Tax Shelters

* The IRS announced in Notice 9%59 (1999-52 IRB) that it was going after another "tax product" designed to generate tax losses. The service described a bond and options sales strategy involving a partnership and a foreign corporation, which generated a loss but lacked economic substance. …

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